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Foreign direct investment, corruption and democracy

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  • Aparna Mathur
  • Kartikeya Singh

Abstract

This article is the first to show that foreign investors care about economic freedoms, rather than political freedoms, in making decisions about where to locate capital. Hence more democratic countries may receive less Foreign Direct Investment (FDI) flows if economic freedoms are not guaranteed. One reason could be that democratizing developing economies are often unable to push through the kind of economic reforms that investors desire due to the presence of competing political interests. This could potentially explain why countries like China and Singapore that rank poorly on the democracy index but are relatively high on the property rights index do well in terms of FDI inflows.

Suggested Citation

  • Aparna Mathur & Kartikeya Singh, 2013. "Foreign direct investment, corruption and democracy," Applied Economics, Taylor & Francis Journals, vol. 45(8), pages 991-1002, March.
  • Handle: RePEc:taf:applec:45:y:2013:i:8:p:991-1002
    DOI: 10.1080/00036846.2011.613786
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    References listed on IDEAS

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    1. James Gwartney, 2004. "What Have We Learned from the Economic Freedom of the World Index?," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 20(Fall 2004), pages 1-8.
    2. James R. Hines, Jr., 1995. "Forbidden Payment: Foreign Bribery and American Business After 1977," NBER Working Papers 5266, National Bureau of Economic Research, Inc.
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